When Should You Walk Away from a Real Estate Deal?

It can be difficult to walk away from a seemingly promising real estate deal. However, knowing when to walk away can save you a lot of stress and frustration, and likely a lot of money. When something goes wrong during the buying process, walking away can be your best decision financially. Here are some examples of situations where you should walk away from a real estate deal and peruse a different investment property.

Major Issues are Uncovered During the Home Inspection

Before you make an offer on an investment property, it’s important that you hire a professional home inspector. Home inspections are crucial for figuring out what kinds of repairs or renovations the property may need. The inspection report will provide the status of the property’s plumbing, foundation, electrical wiring and structure. If the inspection reveals minor issues that don’t require too much money such as peeling or chipped paint, broken sockets or outdated fixtures, you’re usually good to go on the deal. But if you uncover major issues such as faulty wiring, an unstable foundation or severe mold, it might be in your favor to walk away from the deal.

Issues During the Title Search

A title search is the process of examining past tax records, deeds, or other financial transactions connected to real estate. The purpose of a title search is to make sure the individual selling the property doesn’t have any encumbrances or liens that would complicate the transfer of the title. To conduct a title search yourself, start by checking online records or visit the county office. You can also hire a title search company to do the digging for you as well. You should consider walking away from the deal if the title search reveals:

• Uninformed heirs: If any heirs have not been notified of the sale, there could be legal problems in the future.
• Liens on the property: This includes tax liens, mechanic’s liens, attorney’s liens, etc. If the seller cannot pay these off before closing, walk away.
• Unlawful deeds: this typically emerges during the title search. Deed problems can create issues down the line.

Deed Restriction Has Too Many Limitations

A deed restriction is a statement that places certain limitations on how a property can be used. Changing them can take a lot of time and effort, and can be a huge legal expense. A deed restriction might include limitations such as:

• Increasing the number of bedrooms
• Changing the color of your rental property
• Keeping certain breeds of pets
• Adding structures such as pools or garages
• Removing trees
• Building fences

Before you make an offer, be sure to ask for a copy of the deed restrictions. If you find it to have too many limitations, you should probably walk away from the deal.

Homeowners Insurance Is Too High

Buying an investment property requires you to pay homeowners insurance to cover the house, as well as the people living in it. Before closing on a property, you should shop around to find out what you’ll likely be charged for homeowners' insurance. An agent or app will calculate a quote based on the following:

• Where the property is located
• When it was built
• Square footage
• The type of construction
• Foundation type
• The type of air-conditioning or heating systems

If the property is located in a high-risk area or has features that would be considered a liability, the insurance will likely be overpriced. This is a tell-tale sign that the real estate deal is bad and you should walk away.

Final Thoughts

The process of buying an investment property can be stressful and time-consuming, and you need to cover all bases to ensure you’re not going to experience problems after closing the deal. Walking away from a seemingly good deal can be hard, but you’ll end up saving a lot of money and stress in the long run.

Looking to Finance Your Next Investment Property?

RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.